The Economic Way of Travel
By David Henderson
Thinking like an economist about travel.
Here’s what happened yesterday. A good friend called me and asked me for advice. I often hesitate to give advice but I don’t hesitate to ask lots of questions. At the end, usually the person can figure it out for himself or come close with a little intellectual nudging.
He’s a fellow academic and I don’t want to reveal his identity so I’ll call him Fred. Fred took Amtrak last week from California to his boyhood home in the East for Christmas. He found that he got a lot of work done on a paper he’s working on: at least 3 hours a day of intense uninterrupted work over a 2.5 day trip.
He’s trying to decide whether to come back to California by train or fly. We talked through COVID-19 risks first and he’s convinced that they’re comparable. (When he took the train, it was 40% full and he had his own compartment. That tilts in favor of the train, but the train takes about 9 times as long as the airplane, which tilts in favor of the airplane.) I had no expertise on those risks and so I didn’t offer any. The point is that he was convinced that the risks are roughly equal and I had no basis for contradicting that.
The next question I asked Fred is whether if he got back to California early (by taking the plane) he could work at least 3 hours a day at home. He said he probably couldn’t work nearly as effectively because the absence of distractions on the train was something he couldn’t easily replicate where he lives.
In short, he would be more productive if he took the train.
I then asked whether getting the work done on the train on the way back to California creates some momentum in his work that helps him when he gets home. He said it does.
There was one main issue left: relative fares. The one way airfare is about $500 and the Amtrak fare is a whopping $1,300.
“$1,300 is a lot of money,” he said.
I replied that the relevant number was not $1,300 but $800 because that’s the increment in outlay from taking the train. He got the point immediately and then said, “See? That’s why I like talking to you. You give me clarity.”
“Moreover,” I said, “maybe you could deduct the train fare. Are you visiting fellow academics back there? If not, make sure you do. Take one or a few for coffee to talk about your work, and socially distance. If you can justify deducting the fare, the real difference in monetary cost to you is (1- t)* $800, where t is your marginal tax rate. I happen to know that your marginal tax rate on your Schedule C income is about 40%. So the real difference in cost is $480. I know your net worth quite well and you can easily afford this. But even if you can’t deduct, $800 is not a large number for you relative to your net worth. Is your added productivity worth at least $800?”
He decided to take the train.